Gap picks Microsoft Azure as preferred cloud vendor: Here's a look at the digital transformation plan

Gap is moving inventory and commerce systems to Microsoft Azure, but the bigger play will revolve around leveraging data for AI.

Gap Inc. is choosing Microsoft as its preferred cloud vendor as part of a broader digital transformation effort. Gap will move its inventory and commerce sites to Microsoft Azure first in a multiyear deployment and then ultimately look to leverage machine learning and artificial intelligence services.

The retailer features a collection of mature and fast growing brands including Old Navy, Gap, Banana Republic, Athleta, Hill City and Intermix. CEO Arthur Peck has said on earnings conference calls and investor presentations that technology can help it serve its customers better as well as provide efficiency gains.

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Peck, like other CEOs embarking on a digital transformation effort, has said that data is the company's core asset. On an Aug. 23 earnings conference call, Peck said:

I've highlighted our data asset. It's a data asset that we're really just scratching the surface of it, just starting to explore. We have our data sciences team. We're building that team up pretty aggressively. But, really, for the first time in the history of the company, we do have a 360 longitudinal view of the customer. And we know that customer's psychographics and demographics. We know how they do or don't cross shop our brands. We know the -- and are learning the sort of gateway product purchases for our brands that result in continued engagement.

Here's a look at where Gap stands today and where it wants to go in three slides from a Goldman Sachs investor presentation.

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To get to that data nirvana, Gap has to move its current systems to the cloud. The return revolves around being more nimble and scaling. Like other cloud deals of late, providers such as Microsoft, Amazon Web Services and Google Cloud Platform initially win on infrastructure, but multi-year deals revolve around the machine learning and AI roadmap. Microsoft CEO Satya Nadella has said that his company is looking to make AI and machine learning more consumable.

Sally Gilligan, Chief Information Officer of Gap, said that the retailer's technology strategy is "based in business strategy and meeting customer needs." Gilligan said Gap already has a lot of analytics systems and an omnichannel experience across physical stores, digital and mobile.

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"The cloud offers the ability to increase our state of development and innovate faster and autoscale with our growth," she said.

Specifically, Gap is using Microsoft Azure and Microsoft 365 to bolster efficiency and deploy new business functions.

Gap highlighted its productivity efforts, which appear to run through the cloud.

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Peck has noted that Gap is looking to consolidate legacy systems and the retailer will migrate hundreds of applications to Azure. By working off of Azure's platform as a service, Gap is looking to give new capabilities across its business.

What Peck is really hoping to do is balance the returns on Gap's collection of brands and ideally migrate customers between them.

The data dream

Gilligan said in an interview that the Azure migration is in its early stages. While the move to the cloud is one part of the digital transformation effort, Gilligan said everything revolves around the customer. Personalization, inventory and even fashion choices will ultimately touch AI and machine learning.

For Microsoft, the Gap win initially gives it a big cloud customer but could enable it to highlight its algorithms and research.

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What remains to be seen is how Gap winds up managing its various AI technologies. For instance, Salesforce uses Gap as a case study highlighting how data can be used on its platform.


Gap uses Salesforce for service, commerce and marketing.

Peck has said that Gap can already target "pretty surgically" through digital channels, but is exploring lookalike customer segments to find people who haven't been engaged with the brand but "show the characteristics of our best customers."

Peck noted in August.

Data is a scale asset, and the more that you have, the more value you can extract. Because of our size and our scale, we have an immensely valuable data asset that we're just beginning to exploit.

We have 2 billion customer visits across our brands and channels. We have a co-branded and private label credit card that gives us great intimacy with those customers. We have customer information capture incented in our stores. And in the subset of our brands and stores, we have clienteling. The value of converting all of this data to insight and action is huge. A simple example is that migrating just 1% of our single visit customers to be multi-channel, multi-brand represents $200 million of top line on an annual basis.

For now, Microsoft is playing in the workload and productivity bucket of Gap's overall digital transformation plans. Over time, it'll be interesting to watch if Microsoft can move more into the revenue driving part of the equation.

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